This year’s results show a major divergence in strategies. Three of the four biggest PSAOs will participate in a comparable number of Part D networks, as the big chains do. AmerisourceBergen’s Elevate network, however, continues to go its own way and will skip preferred status in the major Part D networks. You will find its reasoning below.

Large pharmacies interact and negotiate directly with PBMs and other third-party payers. By contrast, nearly all smaller pharmacies participate in pharmacy services administrative organizations (PSAOs) to leverage their influence in contract negotiations with PBMs and other third-party payers. The PSAO relationship is crucial for independent pharmacies, because these pharmacies generate more than 90% of their total sales from prescription dispensing.

Here are the four largest PSAOs:

Health Mart Atlas (HMA) is now the largest PSAO, with more than 6,600 participating pharmacies. It was created in 2018 as a joint venture between McKesson’s Access Health business and the PSAO services of American Pharmacy Network Solutions (APNS). I discuss this transaction in McKesson Leads Another Round of PSAO Consolidation.

The Elevate Provider Network (owned by AmerisourceBergen) provides third-party contract administration and claims payment for 4,600 independent pharmacies. This PSAO was previously known as the GNP Provider Network.

Arete Pharmacy Network was formed in 2016 as a joint venture that combined H.D. Smith’s Third Party Network and United Drugs, a subsidiary of the independent pharmacy group American Associated Pharmacies (AAP). (See Surprise PSAO Consolidation .) Note that H.D. Smith did not sell its interest in the Arete Pharmacy Network when its wholesaling business was acquired by AmerisourceBergen. In September 2018, AAP acquired H.D. Smith’s share in Arete, making Arete a wholly owned subsidiary of AAP.

To complement our analyses of retail chains, the table below shows PSAO participation in the 22 major multi-regional Part D plans with preferred cost sharing pharmacy networks, as well as participation in the 2 plans that had preferred networks in 2018 (but not 2019). These larger plans will operate 743 regional PDPs, or 90% of regional PDPs with a preferred cost sharing network. The shaded boxes indicate a change in a PSAO’s participation from 2018 to 2019.

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Here are highlights of PSAO participation in 2019 Part D preferred networks:

Pharmacies that belong to three of the four largest PSAOs will have preferred status comparable to the participation of the largest chains. These PSAOs apparently decided that participation at reduced margins is better than having members excluded. When preferred plans first started, independent pharmacies were underrepresented compared with chains.

Plans from Aetna and UnitedHealthcare do not have any independent pharmacies participating via PSAOs as preferred pharmacies. Note that two of the Humana plans—Enhanced and Preferred Rx—will have open networks in 2019.

For the second year, AmerisourceBergen’s Elevate is an outlier. The PSAO did not contract for its members to be preferred pharmacies in most of the major 2018 Part D plans. Its members will be preferred in only two major plans for 2019, compared with no preferred status in 2018 plans.

An AmerisourceBergen spokesperson confirmed that its 2019 status was a deliberate strategic choice. Here is the explanation:

“Overwhelmingly, the data is validating our belief that independent community pharmacies have highly loyal patients who are willing to overlook a copay differential, if there is one, because of their profound relationships, customer service and the quality care they provide.”

Elevate tells me that despite a lack of participation in preferred networks, its national market share has been stable, its member pharmacies are growing faster than the overall market, and that its members save on Direct and Indirect Remuneration (DIR) fees.

I don’t have any data to evaluate Elevate’s assertions, but the company clearly feels very good about the decision. As it told me: “For independents, we believe patients pick their pharmacy first and their plan second.”

But if Elevate’s perspective is accurate, I wonder if other independents and chains will start rejecting the profit sacrifices of preferred networks.

Such a strategy is known as The Law of Holes: If you find yourself in a hole, stop digging. It's a deep thought.

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